September 06, 2022
The Internal Revenue Service (IRS) issued Revenue Procedure 2022-34 on July 29, 2022, which lowers the affordability threshold to 9.12% of household income for 2023 (from 9.61% in 2022) for purposes of employer shared responsibility payments and premium tax credits under the Affordable Care Act (ACA). Employers who do not wish to owe employer shared responsibility payments for 2023 generally have three (3) options for determining whether their coverage is affordable for full-time employees.
- The employee’s contribution for the lowest cost self-only plan option that provides minimum value can be no more than 9.12% of Form W-2 wages; or
- The employee’s monthly contribution for the lowest cost self-only plan option that provides minimum value can be no more than 9.12% of 130 hours x the employee’s hourly rate of pay (or lowest hourly rate of pay during calendar month, if lower); or
- The employee’s monthly contribution for the lowest cost self-only plan option that provides minimum value can be no more than 9.12% of the prior year’s federal poverty level ($103.28/month for a one-person household).
If the coverage is affordable and available to all full-time employees, the employer will not owe employer shared responsibility payments.
IRS Proposed Rule to Fix ACA “Family Glitch”
The IRS issued a proposed rule in April 2022 to revise the current interpretation on how eligibility for premium tax credits is determined for family members of employees offered employer-sponsored health coverage. If finalized, the rule – formally titled “Affordability of Employer Coverage for Family Members of Employees” – would fix what has become known as the ACA’s “family glitch” by extending premium tax credits to potentially millions of people who are currently ineligible for subsidies on the ACA marketplaces.
The proposed rule closing the “family glitch” would not impact the ACA employer shared responsibility requirements (i.e., employer mandate). Applicable large employers (with 50 or more full-time and full-time equivalent employees) must continue to offer minimum essential coverage (MEC) that is affordable and meets minimum value to full-time employees and their dependents. The proposed rule does not change the affordability and minimum value tests for full-time employees – nor their associated employer mandate penalties (under IRC Section 4980H(b)) – maintaining their basis on employee-only, not family, coverage.
Business Group on Health summarized the proposed rule, including an overview of the employer implications, in a recent article. The Business Group also submitted comments to the IRS advocating that the Service consider the practical implementation considerations for employers as the rule is finalized.
We recommend that employers:
- Review current plan designs to determine if changes to employee contribution levels are necessary to eliminate risk of owing employer shared responsibility payments;
- Work with HR, payroll, and any third-party vendors to determine what steps, if any, are needed before 2023; and
- Keep in mind the out-of-pocket limits that also apply to group health plans.
Employers should also review the impacts of the proposed rule to fix the ACA “family glitch” with legal counsel, consultants, third-party administrators, and eligibility vendors to discuss potential implications should the IRS finalize the proposed rules for plan years beginning January 1, 2023 (as the IRS suggests in the preamble to the proposed rules).
- IRS: Revenue Procedure 2022-34
- IRS: Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act
If you have questions, comments, or concerns about these or other regulatory and compliance issues, please contact us.
We provide this material for informational purposes only; it is not a substitute for legal advice.